Wildfire and Fire Insurance in California Poses a Dilemma

(Contributed Photo)
Virtual Homeowners’ Investigatory Hearing, held Oct. 19, 2020, where Insurance Commissioner Ricardo Lara heard public input to explore regulatory actions he should consider to make insurance available and affordable for policyholders while preserving a competitive market following this year’s devastating wildfires.

    I was invited by the California Department of Insurance to speak as a consumer representative at its Virtual Investigatory Hearing held in October. (www.youtube.com/watch?v=vYtFqWo_qek&feature=youtu.be). A broad spectrum of stakeholders was invited to relate struggles dealing with the vulnerable insurance market here. It was fascinating and revealed an extremely complicated dynamic. In the coming months this will heat up.
    Orindans know personally that the insurance market in California is struggling, as evidenced by the extreme rate hikes and non-renewals many of us have experienced.  The insurance industry lost decades of profit from the fires of the last three years, but also received $11 billion from a settlement with PG&E, so it’s hard to know the real bottom line for the industry. Firms like Merced Property & Casualty Company have gone out of business due to claims from fires.
    One flashpoint is the use of modern catastrophe model or cat model. It is a risk management tool that uses computer technology to help insurers and reinsurers, as well as business and government agencies, better assess the potential losses caused by natural and man-made catastrophes. Currently, insurers can only use 20 years of experience, in addition to third party products like FireLine. Fire Hazard maps can yield arbitrary results – such as neighboring houses being assigned different risk levels.
    Cat models could greatly improve the risk assessment. They combine experience, geographic data and forward-looking algorithms to evaluate future risk, but these are prohibited in California.  Many consider cat models to be “black boxes,” and modelers are reluctant to open them to public inspection because doing so would expose their costs to all, including their competitors. 
    Consequently, insurers do not have confidence in their ability to accurately measure wildfire risk with the means currently at their disposal. They, therefore, try to protect themselves by leaving the market or setting the rates as high as possible.
    Even if the ideal risk assessment tools were available, our rates would have to increase markedly to take in the current risk.
    California Insurance Commissioner Ricardo Lara is exploring guidelines/policy/laws to improve the risk through stricter fire and building codes, and creating statewide vegetation management standards that can be used to give homeowners discounts. Insurance companies are reluctant to consider homeowner wildfire mitigation efforts because they can’t predict how successful those efforts would be without cat models.
    In 2020, Lara “hit the pause button,” with a moratorium on policy cancellations for zip codes adjacent to recent fires, though insurers can cancel for other reasons like nonpayment of premiums. Because of the Sky Fire in Martinez, Orinda and Lafayette were a part of that moratorium which expires Dec. 6. A new moratorium has been imposed, but Orinda is not a part of it. Theoretically, the rate of cancellation in our town will rise after that, and people may be pushed to the California FAIR Plan, called the insurance of last resort because it only covers fire and smoke damage.
    While the complex dynamics play out at the state level, we must stay attuned to these issues, and work to harden our homes, our neighborhoods and our town as best we can. At the very least, we would then be more resilient to a wildfire.
    In the best-case scenario, insurance companies will recognize our efforts with meaningful discounts. If your insurance is cancelled or the premiums skyrocket, there are two resources for you: United Policyholders (www.uphelp.org) and the California Department of Insurance (www.insurance.ca.gov); both will work with you to find a solution. Homeowners have 45 days from the date they were notified to find a new insurance carrier. Also, let your elected officials, Assembly Member Rebecca Bauer-Kahan (a16.asmdc.org) and Senator Steve Glazer (sd07.senate.ca.gov/contact), know you have lost your insurance.

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